Lodha Builders Pvt Ltd vs. ACIT (ITAT Mumbai)

Though accepting/ repaying loans/ advances via journal entries contravenes s. 269SS & 269T, penalty cannot be levied if the transactions are bona fide & genuine. The time limit for penalty u/s 271D & 271E is governed by s. 275(1)(c) & not 275(1)(a)

The AO passed an assessment order dated 5.12.2011 in which he took the view that the act of the assessee of accepting and repaying loans and advances by way of journal entries was in contravention of s. 269SS & 269T of the Act as the said transactions were “not by way of account-payee cheque or demand draft”. The Addl CIT thereafter passed a penalty order dated 28.9.2012 by which he levied penalty u/s 271D and 271E for contravention of s. 269SS & 269T. Before the Tribunal the assessee argued (i) that the said penalty order was beyond the limitation period set out in s. 271(1)(c) and (ii) that the passing of journal entries did not attract the prohibition in s. 269SS & 269T. HELD by the Tribunal allowing the appeal:

(i) The time limit in s. 275(1)(a) covers those cases where the penalty proceedings are in respect of a default related to principal assessment for a particular assessment year and the penalty proceedings are required to be initiated in the course of that proceedings only. The time limit in s. 275(1)(c) applies to case where the penalty proceedings are independent and not directly linked to the assessment proceedings. The time limit for penalty u/s 271D/ 271E for contravention of S. 269SS & 269T falls under s. 275(1)(c) (Hissaria Bros 291 ITR 244 (Raj), Jitendra Singh Rathore 352 ITR 327 (Raj), Worldwide Township Projects (Del) & Dipak Kantilal Takvani 39 TM.com 53 (Raj) (TM) followed);

(ii) The acceptance and repayment of loans vide journal entries attracts s. 269SS & 269T as held in Triumph International 345 ITR 370 (Bom). However, in that case penalty u/s 271E was deleted on the basis that there was “reasonable cause” u/s 273B as the transactions were bona fide and genuine and did not involve unaccounted money. On facts, there is no finding by the AO that the transactions constitute unaccounted money or that they are not bona fide or not genuine. The assessee’s explanation for the journal entries, viz that they are alternate mode of raising funds, assignment of receivables, squaring up transactions, operational efficiencies/MIS purpose, consolidation of family member debts, correction of errors, etc are commercial in nature and not non-business. Also, what is the point in issuing hundreds of account payee cheques / account payee bank drafts between sister concerns of the group, when transactions can be accounted in books using journal entries, which is also an accepted mode of accounting? Journal entries should enjoy equal immunity on par with account payee cheques or bank drafts provided the transactions are for business purposes and do not involve unaccounted money and are genuine. In fact, such journal entries shall save large number of cheque books for the banks. There is consequently reasonable cause to delete the penalty.